On January 1, 2021, Dawson Construction sold $800,000 of 6% bonds to Sowell Enterprise. The bonds mature on December 31, 2024 (4 years). For bonds of similar risk and maturity, the market yield was 8%. Interest is paid semiannually on June 30 and December 31.

Sowell Enterprise purchased the bonds as an investment and plans to hold the bonds for approximately 2 years.

The fair value of the bonds at 12/31/21 was $745,000.

Sowells fiscal year end is December 31 and 2020 was its first year of business.

Required:

1. Prepare the fair value adjusting entry for Sowell Enterprise as of 12/31/2 Show your work.

2. Show or describe exactly and specifically what will appear on the Balance Sheet of Sowell Enterprise as of 12/31/21, related to these bonds.

3. Show or describe exactly and specifically what will appear on the Income Statement of Sowell Enterprise for the year ending 12/31/21.

4. Prepare the journal entries Sowell Enterprise should make on the following dates related to this investment. Assume that the fair value of these bonds is $782,000 at 12/31/22. Show your work.

6/30/22:

12/31/22:

5. Assume Sowell sells these bonds on 3/1/23 for $765,100. Prepare all journal entries required on 3/1/23. Show your work.

Accrue interest as of 3/1/23:

Adjust to fair value as of 3/1/23:

Reclassification entry as of 3/1/23:

Record the sale of the investment on 3/1/23: